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Transaction costs and information systems: does IT add up?

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Transaction cost theory has often been used to support the use of information and communication technology (ICT) to reduce imperfection in the economic system. Electronic markets and hierarchies have repeatedly been described as solutions to inefficiencies in the organisation of transactions in complex and uncertain settings. Far from criticising this assumption, this paper highlights the limits associated with this application of transaction cost theory that has been prevalent in IS research. Building on the concepts first proposed by Ciborra, the paper argues that information-related problems represent only some of the elements contributing to transaction costs. These costs also emerge due to the interdependencies among the various factors contributing to their growth. The study of the consequences associated with ICT design and implementation, grounded in transaction cost theory, should consider the overall implication associated with the adoption and use of ICT and not only the direct effect on problems associated with information flow, distribution, and management.

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